New York proposes regulations for virtual currency

ALBANY, N.Y. (AP) — New York regulators on Thursday proposed establishing rules for firms involved in receiving, transmitting and storing virtual currency, as well as retail conversions.

The proposal by the Department of Financial Services would establish a so-called "BitLicense."

Merchants and consumers who use the virtual currency such as Bitcoin solely to buy and sell goods and services wouldn't need a license. However, those buying and selling virtual currency as a business would.

The proposal, following a yearlong department study, is intended to establish consumer protections and prevent money laundering. Financial Services Superintendent Ben Lawsky said his agency is trying to do that without stifling innovation.

"Setting up common sense rules of the road is vital to the long-term future of the virtual currency industry, as well as the safety and soundness of customer assets," Lawsky said.

The proposed rules are scheduled to be published July 23, followed by a 45-day comment period. Lawsky posted a description Thursday on the website Reddit, which quickly prompted a few hundred comments in response.

As the first state to do put forward specially tailored rules for virtual currency firms, Lawsky said continued feedback will be an important part of establishing a final regulatory framework.

Bitcoins and other virtual currencies have been gaining the backing of legitimate investors and mainstream businesses. Earlier this year, Overstock.com became the first major retailer to accept digital money.

Users swap cash for virtual currency using online exchanges, then store it in a wallet program on their computer. The program can transfer payments directly to a merchant who accepts the currency or to private parties anywhere in the world, eliminating transaction fees and the need to provide bank or credit card information.

The proposed New York regulations would require of licensed companies:

— a background check of all employees and founders with fingerprints submitted to state authorities and the FBI;

The department would prohibit accounts with shell entities that have no physical presence in any country and require notifying customers that virtual currency is not legal tender and not backed by the government.